Europe hands back some gains, Trump’s speech in focus

23-4-2020 12:03:12European stocks are still in positive territory, but they have handed back much of their gains in the past few hours.

Europe

Losing ground towards the end of the trading day has been common recently, and it speaks to a nervousness in the markets.

The EU have stepped up their response to tackle the health crisis. Brussels are ready to suspend their fiscal rules if it is required, and this showed traders that they are willing to do what it takes to cushion the blow of the health emergency. In addition to that, a €37 billion health fund has been declared, and SMEs will receive help in the form of liquidity.

The travel sector continues to see big volatility. Norwegian Air Shuttle shares received a nice boost courtesy of the Norwegian government who announced that all air travel related taxes will be suspended. Airline stocks were already pushing higher in advance of the news, and the update was initially welcomed, but the feel-good factor didn’t last too long. Halting air travel taxes is all well and good but, but if the public don’t want to travel for fear lockdowns will be announced, the cheaper airfares are unlikely to drum up much business.

The EU has helped the aviation industry as they suspended the regulations in relation to slot-use. Lufthansa, BA’s parent International Consolidated Airlines Group and Ryanair are up on the day.

The Spanish and Italian regulators have banned short-selling of certain stocks in light of the colossal losses that were registered yesterday. UniCredit, Banco Santander, and Juventus are some examples of the companies that can’t be shorted. The news helped drive up the IBEX 35 and the FTSEMIB today, but that doesn’t mean that confidence has been restored in the companies. In September 2008, the shorting ban for financial stocks was introduced, and that didn’t stop the stocks from tumbling in the weeks and months after. By announcing the ban, the regulators are highlighting the vulnerability of the firms.

Mining companies have enjoyed a decent move higher thanks to a rebound in copper. Stocks such as Anglo American, Antofagasta, Rio Tinto and BHP are in demand.

Carnival, who are also listed in the US, are still suffering from yesterday’s news that the company will suspend global operations for its subsidiary Princesses Cruises for two months. Today in London the stock in down 11%.

US

The Dow Jones is up roughly 0.7%, but shortly after the open it was up for more than 5%. Keep in mind lost nearly 10% yesterday - it was the largest daily percentage loss since 1987. A strong start followed by the market handing back gains indicates an absence of confidence in the rebound.

Steve Mnuchin, the US Treasury Secretary, said US lawmakers are closer to agreeing a stimulus package to tackle the health emergency. The package that is in the pipeline is believed to provide support for the industries that have been hit the hardest, such as tourism and leisure. Mr Mnuchin is optimistic the Fed and the US government will do what it takes to tackle the health emergency. President Trump will make an announcement at 19:00 GMT.

American Airlines, Delta Airlines, United Continental and Carnival Corp are all higher on the session as trader are banking on some sort of Federal support.

Apple shares are in demand today after the group said it has reopened 42 branded stores in China – they were closed due to the health situation in early February. This announcement sends out a positive message about China – that things are getting back to normal, and therefore the supply chains are more likely to be operating smoothly.

Slack shares have sold-off sharply on the back of the latest quarterly update. The loss per share was 4 cents, while traders were expecting a loss of 3 cents. Revenue for the three month period was $181.9 million, topping forecasts. The first-quarter guidance disappointed, as the company predicted revenue of between $185 million and $188.1 million, while equity analysts were expecting $188.4 million.

Things seems to be on the up for Gap as the retailer announced respectable quarterly numbers. EPS were 55 cents, and that smashed the 41 cents forecast. Revenue ticked up to $4.67 billion, which topped estimates too. Same-stores-sales dropped by 1%, but the market consensus was a 3.8% decline. The fashion house warned the coronavirus crisis would knock $100 million off sales in 2020.

The preliminary reading of the University of Michigan consumer sentiment report for March was 95.9, while the consensus estimate was 95. The February reading was 100.9. All things considered it was a pretty good report.

FX

A continued move higher in the US dollar index has put additional pressure on EUR/USD and GBP/USD. Amid the heath crisis, dealers seem to have more confidence in the US economy than the British or the eurozone. That being said, the markets are pricing in a high chance of the Fed lowering rates again at next week’s meeting.

It was a fairly quiet day in terms of economic announcements as far as Europe was concerned. Germany published the final reading of its CPI report, and it came in at 1.7%, meeting forecasts, and it was unchanged from the preliminary reading. France revealed its CPI data too, the level was 1.6% - no surprises there. The readings were for February so the coronavirus related fears might appear in the flash CPI reports for March.

Commodities

The strength of the US dollar in addition to the risk-on attitude of traders has put pressure on gold. The inverse relationship with the greenback has been strong recently. Now that dealers are hopeful for some sort of stimulus package from the Trump administration, they are turning their backs on safe haven plays like gold.

WTI as well as Brent crude rallied this morning on the back of the wider feel-good mood that swept across the markets. The health fund from the EU as well as the chatter of assistance from the US government boosted oil prices, but most of the gains have been given up – which underlines the weak sentiment in the energy market. The Saudi-Russian rift is playing traders’ minds.

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